Mortgage Meltdown: Fed Helps Investment Banks But No Relief for Homeowners

It isn’t rocket science: Stop the foreclosures and you stop the bleeding for our economy. For each one of you that exercises your many rights to defend your property and attack the validity of the mortgage and note, you are not only doing yourself a huge favor, you are doing the economy a favor. The Fed doesn’t get that because politics and business are so intermingled these days that the only windfall they see as acceptable is the one that goes up to large companies feeding off the national treasury. A multi-trillion dollar “windfall” to borrowers is not acceptable even though it was created by fraudulent and deceptive practices of the big players. It doesn’t matter what they think or how they operate. Unless they change 300 years of common law, modify the Uniform Commercial Code, order the change of state property laws across the country, their mortgages and notes are DEAD.

I proposed a solution 6 months ago which spread the loss amongst everyone. The closest they came to accepting that solution was Barney Frank’s bill which has passed but which is amended in so many ways as to render it largely ineffective. So it’s time for war. The Homeowner’s War: How to Sue Your Lender, Keep your Property, Collect Damages and Thank Your Layer will be out soon in paperback. Meanwhile, stay tuned here.

Here is the latest announcement from the Fed:


The Federal Reserve today announced several steps to enhance the effectiveness of its existing liquidity facilities, including the introduction of longer terms to maturity in its Term Auction Facility.  In association with this change, the European Central Bank and the Swiss National Bank are adapting the maturity of their operations.

Federal Reserve Actions
Actions taken by the Federal Reserve include:

  • Extension of the Primary Dealer Credit Facility (PDCF) and the Term Securities Lending Facility (TSLF) through January 30, 2009.
  • The introduction of auctions of options on $50 billion of draws on the TSLF.
  • The introduction of 84-day Term Auction Facility (TAF) loans as a complement to 28-day TAF loans.
  • An increase in the Federal Reserve’s swap line with the European Central Bank to $55 billion from $50 billion.

These actions are described in detail below.

Extension of the PDCF and TSLF
In light of continued fragile circumstances in financial markets, the Board has extended the PDCF through January 30, 2009, and the Board and the Federal Open Market Committee (FOMC) have extended the TSLF through that same date.  These facilities would be withdrawn should the Board determine that conditions in financial markets are no longer unusual and exigent.

The PDCF provides discount window loans to primary dealers, collateralized by investment-grade securities.  The interest rate charged is the primary credit rate (discount rate) of the Federal Reserve Bank of New York.  Under the TSLF, the Federal Reserve Bank of New York conducts weekly auctions of 28-day loans of Treasury securities to primary dealers.  Loans under the TSLF are collateralized by a range of government and private securities.

Auctions of TSLF Options
The FOMC has authorized the Federal Reserve Bank of New York to auction options for primary dealers to borrow Treasury securities from the TSLF.  The Federal Reserve intends to offer such options for exercise in advance of periods that are typically characterized by elevated stress in financial markets, such as quarter ends.  Under the options program, up to $50 billion of draws on the TSLF using options may be outstanding at any time.  This amount is in addition to the $200 billion of Treasury securities that may be offered through the regular TSLF auctions.  Draws on the TSLF through exercise of these options may be collateralized by the full range of TSLF Schedule 2 collateral.  (Schedule 2 collateral includes Treasury securities, federal agency debt securities, mortgage-backed securities issued or guaranteed by federal agencies, and AAA/Aaa-rated private-label residential mortgage-backed, commercial mortgage-backed, and asset-backed securities.)  Additional details of this program will be announced once consultations with the primary dealer community have been completed.

Eighty-four-day Term Auction Facility Loans
Beginning on August 11, the Federal Reserve will auction 84-day TAF loans while continuing to auction 28-day TAF funds.  Specifically, the Federal Reserve will conduct biweekly TAF auctions, alternating between auctions of $75 billion of 28-day credit and auctions of $25 billion of 84-day credit.  Currently, the Federal Reserve auctions $75 billion of 28-day funds every two weeks.  During a transition period, the amount of 28-day credit being auctioned will be reduced to keep the amount of TAF credit outstanding at $150 billion.  A schedule of TAF auctions and applicable terms and conditions can be found at

Under the TAF, the Federal Reserve auctions term funds to depository institutions, secured by a wide variety of collateral.  All depository institutions that are judged to be in generally sound financial condition by their local Reserve Bank are eligible to participate in TAF auctions.

Increase in Swap Line with European Central Bank
The European Central Bank (ECB) and the Swiss National Bank (SNB) have informed the Federal Reserve that, in association with the lengthening of the maturity of the Federal Reserve’s TAF loans, these central banks will also make 84-day funds, as well as 28-day funds, available at their dollar auctions.  The FOMC has authorized an increase in its dollar swap line with the ECB to $55 billion from $50 billion in order to accommodate a temporary increase in the ECB’s dollar auctions as the ECB shifts some of its auctions to 84-day terms.  The size of the SNB’s swap line remains at $12 billion.  These swap lines are authorized through January 30, 2009.

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